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Management company under Unit Trusts Control Act 54 of 1981

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Description of management company under Unit trust and its objectives and powers.

Management Company Under Unit Trusts Control Act 54 of 1981

The Unit Trust Act that governs the unit trust industry in South Africa was first drafted in 1947. Amendments do take place, as occurred in 1962, 1981 and again in 1988. The Act contains a number of very important provisions, some of which we will mention briefly in the next section.

Procedure in connection with registration of management companies:

Every company which desires to be registered as a management company under this Act shall lodge with the registrar an application for such registration in the prescribed manner and form and disclosing the prescribed particulars.

The registrar may call upon any company which has applied for registration in terms of the paragraph above to furnish him with any further information which is relevant to the application.

If the registrar is satisfied: -

(a) that the trust deed which the management company proposes to enter into for the purposes of the unit trust scheme in question does not contain anything inconsistent with the provisions of this Act and is based on sound financial principles;
(b) that the proposed trustees are qualified under this Act to act as trustees; and
(c) that the manner in which the business of the applicant company is to be carried on is not inconsistent with the provisions of this Act and is based on sound financial principles,

Then the registrar shall, subject to certain provisions and on such conditions as he may deem fit, register the applicant as a management company and issue to it a certificate of registration in the prescribed form.

The registrar shall not register any company as a management company under this section unless he is satisfied that the general financial and commercial standing of, and the nature of the business conducted by, such company are such as to fit it for assuming the duties and responsibilities of a management company and that its registration as a management company will be in the public interest.

Cancellation or suspension of registration of management company:

1. The registrar may at any time, subject to certain provisions of the Act, cancel the registration of a company as a management company under this Act: -
(a) if he is satisfied that the company has contravened or failed or neglected to comply with any provision of this Act with which it is its duty to comply, or with any direction or requirement lawfully given or imposed under this Act, and that such failure or neglect has resulted or is calculated to result in serious prejudice to the interests of the public at large or of the holders of unit certificates issued by the company;

(b) if he is satisfied, after an investigation in terms of section 26 has been held, that the manner in which the business of the company is carried on is unsatisfactory or not calculated to serve the best interests of such holders of unit certificates;

(c) if it appears that the registration was obtained through fraud on the part of the management company; or

(d) in the event of the company being wound up, either voluntarily or by the court, or may, on any ground mentioned in paragraph (a) or (b), suspend its registration for a period not exceeding 12 months at a time.

2. The registrar shall not cancel or suspend the registration of a management company for any reason mentioned in subsection
(a), (b) or (c) unless he has -
(a) notified the company concerned of his intention and of the grounds upon which he proposes to do so;
(b) allowed the company to make any representations to him which it may wish to make in connection with the proposed cancellation or suspension; and
(c) at the company’s request, afforded it a reasonable opportunity of rectifying or eliminating the defect or irregularity complained of.

Every application for re-registration as a management company by a company whose registration has been cancelled under this section shall be dealt with in all respects as if it were an application for registration by a company which was not, at the commencement of this Act, managing a unit trust scheme in securities other than property shares.

If the registration of a management company is cancelled in terms of subsection (1)(a), (b) or (c), the provisions of this Act with regard to the continuance or the winding-up of the unit trust scheme in the event of the winding-up of the management company shall mutatis mutandis apply: Provided that the registrar may in any such case direct the former management company to defray in whole or in part the expenses incurred in continuing the management of the unit trust scheme, or in realizing any of the underlying securities, as also any commission to which a trustee or a person appointed to take over the duties and obligations of a trustee may be entitled under section 28.

If the registration of a management company has been suspended under subsection (1), the company shall not, during the period of suspension, issue any fresh unit certificates, but shall, in respect of certificates already issued, continue the management of the unit trust scheme and deal with such certificates in all respects as it would have been bound to do had its registration not been suspended.

Exercise of voting power by management company

If a management company or its nominee exercises the voting power conferred by the underlying securities held in trust under a unit trust scheme, the management company or such nominee shall owe a duty to the holders of unit certificates issued pursuant to that scheme to exercise that voting power in such a manner as is best calculated to serve the interests of those holders without, however, entirely subordinating the interests of the company in which the voting power is held, to the immediate interests of such holders.

Nominee Company clause

A nominee company refers to any entity that holds assets in its own name on behalf of the beneficial owner (the nominee company is not the beneficial owner of these assets). To be approved as a Nominee company, an application has to be submitted to the registrar which provides comprehensive information about the company and only on approval can the company act as a nominee.

Compliance Required

• Nominee companies, who want to register or hold any assets of long-term insurers, short-term insurers or pension funds, need prior written approval of the Registrar of Long-term Insurance, the Registrar of Short-term Insurance or the Registrar of Pension Funds, as the case may be.

• Nominee companies, who want to hold clients’ securities in the Share Transactions Totally Electronic (STRATE) environment, by appearing in a sub-register maintained by a Central Securities Depository Participant (CSDP), must comply with the criteria determined by the registrar.

• These requirements are not applicable to foreign nominee companies.

• The registrar concerned shall for the purpose of this Notice, be in the case of long- term insurers, the Registrar of Long-term Insurance; in the case of short-term insurers, the Registrar of Short-term Insurance; in the case of pension funds, the Registrar of Pension Funds and in the case of STRATE, the Registrar referred to in the Custody and Administration of Securities Act, 85 of 1992.

Authority

The authority of the registrar concerned to approve nominee companies, is derived from the following legislation:

• in the case of long-term insurers, section 34(1)(b) of the Long-term Insurance Act, 1998;

• in the case of short-term insurers, section 33(1)(b) of the Short- term Insurance Act, 1998; and

• in the case of pension funds, section 5(3) of the Pension Funds Act, 1956.

Principles Which Underlie The Maintenance Of Registers Of Ownership

• In terms of section 91A of the Companies Act, 1973 only a central securities depository, such as STRATE Ltd, may maintain a register of ownership of uncertificated listed securities and only CSDPs may maintain a sub-register of such ownership.

• In terms of the rules of STRATE a nominee company may not appear in a sub-register maintained by a CSDP unless the nominee company complies with the criteria determined by the registrar.

• The nominee register (sub-sub register) is the sole record of beneficial ownership by persons reflected in the nominee register as a share certificate is no longer prima facia evidence of ownership in a STRATE approved listed security in terms of section 91A of the Companies Act, 1973.

• The responsibilities of, and risks associated with operating a nominee register in this new electronic environment are therefore greater than before. Its accuracy, timeous updating, security from error or manipulation and the necessity to have real time disaster discovery are essential for anyone operating a nominee register.

• All the necessary controls and procedures therefore need to be in place before anyone could apply in terms of these requirements and applicants would need to comply with the capital adequacy requirements as laid down by the registrar from time to time.

Application Procedure

An application for approval of a nominee company shall be lodged with the Financial Services Board (“FSB”), PO Box 35655, Menlo Park, Pretoria, 0102. The nominee company must clearly indicate whether it will participate in the STRATE environment. If the nominee company will hold assets on behalf of more than one of the afore- mentioned institutions, only one application needs to be lodged, although separate approvals in terms of the applicable legislation will be granted by the registrar(s) concerned should the application be successful.

No application for approval of a nominee company need be lodged with the FSB, if the nominee company participates in the STRATE environment but will not hold assets on behalf of a pension fund, a long- term insurer or a short-term insurer and is a subsidiary of a member of the JSE Securities Exchange South Africa (JSE) or a CSDP of STRATE, as they will be approved by the JSE and STRATE, respectively.

Before an application is lodged, an audit certificate should be obtained.

Requirements for Nominee Companies

For the purposes of this document, a nominee company refers to any entity that holds assets in its own name on behalf of the beneficial owner (i.e. the nominee company is not the beneficial owner of these assets).

A nominee company must -

• be a registered company under the Companies Act, 1973: and
• be wholly owned by a holding company; and
• have adequate insurance against loss through fire, theft and the like in place for trust assets held by the nominee company as well as fidelity guarantee cover; and
• conclude a written agreement with each pension fund, short-term insurer and long-term insurer whose assets it will hold and the agreement should comply with the minimum requirements as required by the registrar concerned.

Continuing Obligations of Nominee Companies
The approved nominee company shall submit annually: (a) its audited financial statements; and
(b) an audit report setting forth whether any assets held on behalf of any other person in safe custody, are in possession of the nominee and properly accounted for, within six months of the financial year-end of the company to the FSB. Should the nominee company fail to submit the above and also not apply before the expiry of that period in writing for an extension of time within which to submit the statements, the FSB may withdraw its approval with immediate effect on the conditions as prescribed by the registrar concerned.

A declaration by the holding company of the nominee company must accompany the annual financial statements of the nominee company. The FSB will retain the right to withdraw an approval at any time should the nominee company, its holding company or the company to which the control over the nominee register has been outsourced fail to comply with the FSB’s requirements.

Members of the JSE, CSDP’s and their nominee companies need only to comply with the requirements listed above if they hold scrip on behalf of either pension funds or long and short-term insurers.











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